Investor Presentation November 2016 alaskacommunications.com | - - PowerPoint PPT Presentation

| Alaska Communications

alaskacommunications.com

Investor Presentation

November 2016

| Alaska Communications

alaskacommunications.com

Safe Harbor Statement

Forward-Looking Statements

We have included in this presentation certain "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's beliefs as well as on a number of assumptions concerning future events made using information currently available to management. You are cautioned not to put undue reliance

• n such forward-looking statements, which are not a guarantee of performance and are subject to a number of risks, uncertainties

and other factors, many of which are outside Alaska Communications' control. For further information regarding risks and uncertainties associated with Alaska Communications' business, please refer to the Alaska Communications’ SEC filings, including, but not limited to, our annual report on Form 10-K, quarterly reports on Form 10-Q filed subsequently, and other filings with the SEC, included under headings such as “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Non-GAAP Measures

In an effort to provide investors with additional information regarding our financial results, this presentation includes Adjusted EBITDA, which is a non-GAAP measure. Adjusted EBITDA measures the Company’s primary business activities without regard for the effects of special items and income tax structure. Adjusted EBITDA eliminates the effects of period to period changes in costs that are not directly attributable to the underlying performance of the Company’s business operations and is used by Management and the Company’s Board of Directors to evaluate current operating financial performance, analyze and evaluate strategic and

• perational decisions and better evaluate comparability between periods. Adjusted EBITDA is a common measure utilized by our

peers (other telecommunications companies) and we believe it provides useful information to investors and analysts about the Company’s operating results. The definition of this non-GAAP measure is provided in the Appendix to this presentation. Adjusted EBITDA should not be considered as a substitute for Net Income and other measures of financial performance recorded in accordance with GAAP. The reconciliation of Adjusted EBITDA to Net Income can be found in the Appendix to this presentation. Other companies may not calculate non-GAAP measures in the same manner as Alaska Communications.

Presentation

Certain prior year financial and other information in this presentation has been reclassified to conform to the current year presentation.

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| Alaska Communications

alaskacommunications.com

Company Overview

• Founded in 1998 through the combination of three Alaska-based rural local exchange carriers (“RLEC”) the company is the

incumbent local exchange carrier (“ILEC”) in Alaska ‒ The Company has successfully re-positioned itself as a business-focused telecom service provider, leveraging its significant fiber network across the state to provide fiber broadband and IT services to Enterprises ‒ Alaska Communications also provides broadband and voice to consumers ‒ As the incumbent telecom provider, the Company also provides services under certain regulatory programs, including Connect America Fund (CAF II)

• The Company operates an expansive facilities-based network in Alaska that extends throughout the state and connects to

the contiguous states via its two diverse undersea fiber optic cable systems and usage rights on a third undersea system

• Alaska Communications is a publicly-traded company, listed on NASDAQ with the ticker “ALSK”
• The Company is led by an experienced management team which has over 10+ years experience of working together

‒ Senior management has an average tenure at the Company of 11+ years

• For the Last Twelve Months Ended (“LTM”) September 30, 2016, the Company generated revenues of $225.7 million and

Adjusted EBITDA of $55.7 million ‒ The Company’s Business and Wholesale (“B&W”) segment contributes an increasing share of revenue; ~60% of total revenues for LTM Q3 2016 with over 9% year-over-year growth in 2014, 2015 and YTD 2016

• B&W is expected to be the primary driver of future growth over the next several years, targeting over 8%

annual growth going forward

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| Alaska Communications

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Current Capitalization

($ in millions) 9/30/2016 Capitalization Amount Ratings Maturity Pricing Floor Cash and Cash Equivalents $21.9 Revolver ($10mm)

• 1/2/2018

L+450 bps 1.00% Term Loan B (First Lien) 62.5 NR / NR 1/2/2018 L+450 bps 1.00% Term Loan B (Second Lien) 25.0 NR / NR 3/3/2018 L+850 bps 1.00% Capital Leases and Other Long-Term Obligations 3.6 Total Secured Debt 91.1 Senior Convertible Notes 94.0 NR / NR 5/1/2018 6.250%

• Total Debt

185.1 9/30/16 LTM Operating Statistics Revenue $225.7

• Adj. EBITDA

55.7 9/30/16 Credit Statistics Total Secured Debt / Adj. EBITDA 1.6x Total Debt / Adj. EBITDA 3.3x Net Debt / Adj. EBITDA 2.9x

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| Alaska Communications

alaskacommunications.com

Key Company Milestones

The Juneau and Douglas Telephone Company begins

• perations

1893

Telephone Utilities

• f the Northland

begins operations

1949

Anchorage Telephone Utility begins operations

1921 … …

Alaska Communications is formed as an ILEC (by combining the 3 RLECs)

1998

Sells its interest in the Alaska Wireless Network to GCI

2015 Alaska Wireless Network ("AWN")

• In July 2013, Alaska formed a joint venture with General Communication (“GCI”) through which each entity contributed

their respective wireless assets to enable AWN to design, build, and operate a statewide wireless network − Formed to build a wireless network with the necessary scale and spectrum to compete against national carriers

• In December 2014, Alaska announced the intended sale of AWN as part of its strategic overhaul to wind down the retail

wireless business and refocus on areas of higher return—broadband and managed IT solutions − Transaction closed in February 2015 but Alaska Communications recognized residual revenue until Q2 2015 − Resulted in substantially improved financial profile as net proceeds were used to pay down $240 million of debt − Cost synergies as a result of the sale of AWN were fully realized by Q4 ‘15

Acquires Fiber Network from ConocoPhillips to allow entry into Oil & Gas industry Launches the AWN JV with GCI to better compete in competitive wireless sector

2013 2008

Acquires the Northstar submarine cable, and builds AKORN, providing Alaska diverse submarine routes to the LOWER 48 Completes its initial public offering

1999

RLEC ILEC

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| Alaska Communications

alaskacommunications.com

336,659 356,311 2014 2024E $41.0 $49.4 51.3 2005 2015 2017E

Strong Market Opportunity in An Attractive Market

Alaska’s Macro Economic Growth State GDP Growth ($bn) Employment (# of Jobs)

Large and Growing Addressable Market Alaska’s Economic Outlook

+6%

Source: Alaska Labor & Workforce Development, Bureau of Economic Analysis

• State goes into Fiscal 2017 with:

‒ ~$54B in State’s Permanent Fund, which will continue to generate earnings over time ‒ ~$11B in State reserves providing runway ‒ Projected deficit of ~$3.5B

• Sectors with the greatest exposure to oil prices are

the state government and energy sector. Alaska Communications has: ‒ Low exposure to both sectors – collectively less than 5% of total revenues

• Growing TAM creates new revenue opportunities for

Alaska Communications as customers seek greater value through IT and managed services, and broadband connectivity Opportunity: High Margins: Moderate Competition: Fragmented Opportunity: High Margins: Moderate Competition: Limited Opportunity: High Margins: High Competition: Limited Opportunity: Low Margins : High Competition: Limited

IT Services Voice

47% 27% 11% 15%

Managed Network Broadband

$1.5B

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| Alaska Communications

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Investment Highlights

ILEC with Extensive Fiber Infrastructure Capable of Supporting Growth Comprehensive Suite of Communications Solutions Targeting the Business & Wholesale Market Operating Leverage Driving Strong Free Cash Flow Stabilizing Consumer and Predictable Regulatory Businesses

   

Growing Business-Focused Segments (Broadband and Wholesale)



Highly Experienced and Proven Management Team With Long Tenure of Working Together



Attractive Enterprise Customer Base



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| Alaska Communications

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• Two diverse submarine routes to the Lower 48
• Key fiber assets on Alaska’s North Slope supporting the oil and

gas industry

• Juniper IP/Advanced Ethernet core – statewide 2.0 Certified

Ethernet services

• Widely deployed Metaswitch voice application soft-switch

network

• CyrusOne InternetExchange and Microsoft ExpressRoute

partnerships

• New partnerships enhance security for cloud computing

Extensive Long Haul Fiber Network State of Art Secure All IP Network

• 100G wavelengths in state backbone with diverse routes
• Commencing deployment of GPON access nodes in business

areas

• All military bases on fiber

High Quality Fiber & Broadband Network Historical Investments Have Enhanced Fiber Network and Provided Ample Capacity For Growth

Extensive Fiber Infrastructure Capable of Supporting Growth

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Strategic Commercial Healthcare / Education State / Local Oil & Gas

Kodiak Area Native Assoc.

Carrier / Fed SMB

Attractive Enterprise Customer Base

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| Alaska Communications

alaskacommunications.com

Business & Wholesale ~60% of Revenue

Voice

 Provides traditional voice services as well as hosted voice

• ver internet solutions (VOIP)

 State of art SIP trunking services provide IP voice

leveraging on-premise IP PBX implementations

 Voice origination and termination services to carriers

‒ Charges per minute rates

IT Services

 Provides support and management of IT systems, including

24x7 proactive network monitoring

 Only carrier offering Microsoft ExpressRoute and CyrusOne

InternetExchange secure cloud connectivity solutions

 Provides traditional voice services as a

bundle with internet or standalone to residential customers

Broadband Home Voice

 High-speed unlimited internet service  Provides a dedicated line with individual

connections, to ensure reliability

Comprehensive Suite of Communications Solutions Targeting the Business & Wholesale Market

Consumer ~17% of Revenue

Access & Surcharges

Regulatory ~23% of Revenue

Broadband

 Provides internet connectivity to small to mid-sized

businesses and offers up to 200 Mbps with a dedicated line ‒ Only provider with an uncapped data offering

 Private and secure connections to the cloud offered over an

advanced fiber based Ethernet network with Gig services

 First carrier in Alaska with Carrier Ethernet 2.0 Certified

Services

 Monthly surcharges required by various

government agencies

 Switched and special access primarily from

B&W customers originating/terminating on the Company’s network

High Cost Support

 Funding received from FCC as part of its

Connect America Fund Program (“CAF II”)

 ~$20 million of annual payment to support

broadband deployment to high cost and unserved areas within Alaska

Growth Segment Stable Segment Declining Segment

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Growing Business-Focused Segments

Market Share Growth

 Relatively low market share  Relatively low share of customer IT wallet spend

Broadband

 Explosive demand for data driven by IP traffic growth  Proliferation of mobile-first apps driving demand for backhaul

for 4G/5G and small cell networks

 Migration of IT infrastructure and applications to the cloud

Managed IT Services

 Represents the largest segment in the Company’s TAM  Increased Cloud enablement by Businesses  IT managers looking to consolidate IT vendors and save cost

but not compromise on service quality Observation Implications for Alaska Communications

 Well-positioned to win business due to strong fiber optic

network and robust service offerings from partnerships

 Uncapped data plans remain a differentiator  Grown 12.9% since 2015  Network and service quality will continue to drive gains

in both market and customer wallet share ‒ Has outgrown peers in the B&W sector for 11 consecutive quarters

 Comprehensive service offering positions the Company

to be a one-stop shop for all Enterprise IT needs

 Potential to offer cost effective solutions due to owned

fiber network

 Grown 21.8% since 2015

Obser vation …Driving Favorable Revenue Mix Shift Robust B&W Growth…

Consumer Business/Wholesale Regulatory/Other

LTM 9/30/16 2012

Increasing Business / Wholesale Revenue FYE Dec. 31st

($ millions)

Verdict: Continued Growth In Broadband / Wholesale Business

19% 51% 30%

$101.4 $102.8 $115.1 $126.4 $135.3 2012A 2013A 2014A 2015A LTM 9/30/2016

17% 60% 23%

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$32.3 $31.2 $30.6 $28.8 $28.9 $28.5 $30.7 $34.0 $40.0 $44.5 $51.1 $57.7 $3.5 $3.3 $4.0 $34.3 $36.2 $32.1 $38.3 $43.1 $45.1 $97.2 $101.4 $102.8 $115.1 $126.4 $135.3 2011 2012 2013 2014 2015 LTM 9/30/16

ARPU Increasing ARPU Connections Robust Revenue Stable Connections

Broadband Voice

FYE Dec. 31st

($ millions) (‘000s)

Wholesale & Other Broadband IT Services Voice

Growing Business & Wholesale Segments

 Recent deployments of business suite offerings and revamped

sales efforts have shifted the business mix towards higher-ARPU, high-quality (and faster broadband) services

 ARPU uplift driven by selling faster / higher broadband services

partially driven by clean up of internal (non-revenue generating) connections

 Decline of connections in 2015 and 2016 driven by the Company’s

clean up of internal (non-revenue generating) connections

 Management expects growth in this segment at or above 8%

$25.3 $24.3 $23.8 $23.5 $23.5 $23.4 $23.8 $23.8 $137.7 $155.1 $180.4 $198.5 $272.4 $309.4 $313.9 $328.8 2011 2012 2013 2014 2015 Q1 '16 Q2 '16 Q3 '16 19 18 18 19 15 15 15 15 83 81 80 79 77 76 76 74 2011 2012 2013 2014 2015 Q1 '16 Q2 '16 Q3 '16

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| Alaska Communications

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Stabilizing Consumer Business

ARPU Increasing ARPU Connections Stable Revenue Slowing Decline In Connections

FYE Dec. 31st $22.3 $20.5 $18.6 $15.8 $14.4 $13.3 $17.0 $18.4 $22.1 $25.7 $25.6 $24.7 $39.3 $38.9 $40.7 $41.5 $40.0 $38.0 2011 2012 2013 2014 2015 LTM 9/30/16

Broadband Revenue Voice / Other Revenue ($ millions) (‘000s)

 Experiencing a shift in the composition of customer base to higher

speed customers, which translates to stabilization in revenue

 Result of a conscious decision to stop selling speeds below

10Mbps and shift to higher-margin services

 Management expects consumer revenue to stabilize in 2017  Decline driven by Management’s strategic decision to focus on

higher speed products

 Increased demand for higher broadband connections, positively

• ffsetting decline in Voice

 Over 50% of broadband customers are at 10 Mbps of speed or

higher compared to approximately 25% in early 2015

Broadband Voice

$27.1 $27.0 $27.2 $27.1 $28.2 $28.4 $28.6 $28.3 $37.4 $41.5 $47.9 $55.0 $61.3 $60.6 $60.9 $61.0 2011 2012 2013 2014 2015 Q1 '16 Q2 '16 Q3 '16 36 37 39 37 33 34 34 34 63 56 49 44 38 37 36 34 2011 2012 2013 2014 2015 Q1 '16 Q2 '16 Q3 '16

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Access

Predictable Regulatory Businesses

Connect America Business Description

 Tail circuits leased to

• ther carriers primarily

carrying data

 The Connect America Fund (“CAF”) is an FCC

universal support program designed to promote deployment of broadband in high cost and unserved areas around the country over the next 10 years

 Order includes a build-out schedule which stipulates

30% of build by 2018 and ~10% annually thereafter

 Required to meet a build-out timeline

Revenue Generation

 Designed as cost recovery and has

no direct COGS

 Surcharges determined by FCC but

“kept” by Alaska as revenue except USF which is primarily pass through

 Fixed annual payments for the next 10 years

Financial Profile and Trends

Revenue(1)

 ~$20 million

Trends

 Fixed regulatory revenue with the opportunity

for increased retail service revenue

Access / COLR Surcharges

 Surcharges required by various

federal and state government agencies

 4 programs including USF and

AUSF, Subscriber Line Charge, Network Access Fee and Access Recovery Fee primarily focused on customer access

 Rates regulated by the

FCC and set forth in a tariff Trends

 Expected to decline

due to FCC and RCA policy changes

 Access Recovery

Charge (in Surcharge revenue) was put in place to offset

 Expected to gradually decline due

to decrease in connections and customer base

 State of Alaska considering

applying charges on VOIP

(1) 9/30/16 LTM Revenue

Revenue(1)

 ~$11 million  ~$22 million

Key Terms: COLR: Carrier of Last Resort RCA: Regulatory Commission of Alaska AUSF: Alaska Universal Service Fund USF: Universal Service Funding

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| Alaska Communications

alaskacommunications.com $27 $17 $21 $16 $21 $29 $30 $19 $48 $46 $51 $35 2013 2014 2015 LTM 9/30/16

Operating Leverage Driving Strong Free Cash Flow

Maintenance Capex Growth Capex

Revenue Growth vs. Maintenance Capex

(1) Pro Forma for divestiture of Wireless business (AWN). (2) Reconciliation to the nearest GAAP measure can be found in the appendix.

(1)

FYE Dec. 31st ($ millions)

Adjusted EBITDA less Maint. Capex Adjusted EBITDA

(2) $102.8 $115.1 $126.4 $135.3 $40.7 $41.5 $40.0 $38.1 $55.8 $58.5 $53.3 $52.3 $199.3 $215.1 $219.8 $225.7 2013 2014 2015 LTM 9/30/16 Business and Wholesale Consumer Regulatory/Other $49.9 $55.7 22.7% 24.7% 2015 LTM 9/30/16 $28.9 $39.7 57.9% 71.3% 2015 LTM 9/30/16

(Adjusted EBITDA –

• Maint. Capex) / Adjusted

EBITDA Adjusted EBITDA less

• Maint. Capex

Adjusted EBITDA Margin Adjusted EBITDA

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Highly Experienced and Proven Management Team With Long Tenure of Working Together

Name

Position Tenure at Current Role Tenure at Alaska Background Anand Vadapalli

President and CEO 5+ Years 10+ Years

Laurie Butcher

Senior Vice President, Finance ~1 Year 19+ Years

Bill Bishop

Senior Vice President, Business Market ~1 Year 12+ Years

Randy Ritter

Senior Vice President, Shared Services 3+ Years 3+ Years

Leonard Steinberg

Senior Vice President, Legal, Regulatory, & Government Affairs 16 Years 16+ Years

Mike Todd

Senior Vice President, Consumer Market ~1 Year 8+ Years

 26+ years of finance experience  Prior experience include PWC and Deloitte & Touche  Previously served as COO at Alaska  20+ years of telecom sector experience  Prior experience include Valor Telecom and Cincinnati

Bell

 25+ years of telecom and business leadership experience  Prior experience include senior roles at AT&T  20+ years of telecom experience  Prior experience include Sprint, One Communications and

MacroSolve

 Partner at firm subsequently acquired by Perkins Coie  25+ years of telecom leadership experience  Prior experience include Sprint, Nortel and Ericsson

Strong Track Record of Successful Organic Execution Successfully Re-Positioned the Company as a Business-Focused Service Provider Proven Record of Cost Management

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| Alaska Communications

alaskacommunications.com $12.5 $11.1 $12.6 $13.8 $13.9 $14.0 $13.9 Q1 '15 Q2 ' 15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 $106.5 $92.6 $49.9 $55.7 2013 2014 2015 LTM 9/30/16 $199.3 $215.1 $219.8 $225.7 $348.9 $314.9 $232.8 $225.7 2013 2014 2015 LTM 9/30/16 $53.7 $54.7 $54.7 $56.6 $56.3 $56.3 $56.5 $65.8 $55.7 $54.7 $56.6 $56.3 $56.3 $56.5 Q1 '15 Q2 ' 15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16

Stable, Growing Results Since Wireless Divestiture

Revenue Adjusted EBITDA(1)

Annual Quarterly Annual Quarterly

FYE Dec. 31st Wireless Revenue ($ millions)

Q1 ’15 Wireless divestiture – Revenue and cost synergies fully realized by Q4 ‘15

(1) Reconciliation to the nearest GAAP measure can be found in the appendix.

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| Alaska Communications

alaskacommunications.com

Investment Highlights

ILEC with Extensive Fiber Infrastructure Capable of Supporting Growth Comprehensive Suite of Communications Solutions Targeting the Business & Wholesale Market Operating Leverage Driving Strong Free Cash Flow Stabilizing Consumer and Predictable Regulatory Businesses

   

Growing Business-Focused Segments (Broadband and Wholesale)



Highly Experienced and Proven Management Team With Long Tenure of Working Together



Attractive Enterprise Customer Base



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| Alaska Communications

alaskacommunications.com

APPENDIX

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Reconciliation of Net Income to Adjusted EBITDA

FYE Dec. 31st

2013 2014 2015 LTM 9/30/16 Net income (loss) 158,471 $ (2,780) $ 12,885 $ 982 $ Add (subtract): Interest expense 40,497 34,410 19,841 15,678 Loss on extinguishment of debt 1,663

• 4,878

336 Interest income (53) (83) (58) (20) Depreciation and amortization 42,191 32,583 33,867 34,284 Loss on impairment of equity investment 1,267

• Loss on impairment of goodwill
• 5,986
• Loss on short-term investments

13

• Loss (gain) on disposal of assets, net

3,118 126 (46,252) 396 Earnings from equity method investment in TekMate (93)

• Earnings from equity method investment in AWN

(17,963) (35,960) (3,056)

• Gain on sale/contribution of assets to AWN

(210,873)

• AWN distributions received/receivable

22,011 50,000 765

• Income tax expense (benefit)

56,370 (1,787) 10,200 435 Stock-based compensation 2,860 2,511 2,008 2,257 Long-term cash incentives 631 2,042 1,781 1,010 Pension adjustment

• 134

(76) Gift of services

• (388)

(388) Earthquake related expense

• 1,228
• Net loss attributable to noncontrolling interest
• 69

114 Wireless sale transaction-related and wind down costs 6,382 4,297 13,272 643 Adjusted EBITDA 106,492 $ 92,573 $ 49,946 $ 55,651 $

($ thousands)

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Reconciliation of Net Income to Adjusted EBITDA

($ Thousands)

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Net income (loss) 16,217 $ (4,860) $ 1,202 $ 326 $ 53 $ 283 $ 320 $ Add (subtract): Interest expense 7,419 4,257 4,077 4,088 3,869 3,852 3,869 Loss on extinguishment of debt 2,628

• 2,250
• 336
• Interest income

(25) (17) (14) (2) (5) (6) (7) Depreciation and amortization 8,941 8,075 8,475 8,376 8,520 8,640 8,748 (Gain) loss on disposal of assets, net (38,662) (724) (6,978) 112 24 128 132 Earnings from equity method investment in AWN (3,056)

• AWN distributions received/receivable

765

• Income tax expense (benefit)

13,074 (3,755) 663 218 63 236 (82) Stock-based compensation 484 795 619 110 805 642 700 Long-term cash incentives 334 308 714 425 211 194 180 Pension adjustment

• 210

(76) 21 20 (41) Gift of services

• (388)
• Net loss attributable to noncontrolling interest
• 19

37 13 33 34 34 Wireless sale transaction-related and wind down costs 4,346 6,962 1,321 643

• Adjusted EBITDA

12,465 $ 11,060 $ 12,576 $ 13,845 $ 13,930 $ 14,023 $ 13,853 $

FYE Dec. 31st ($ thousands)

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